PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for 2022.
Deal volumes rose by an extraordinary 56% in the 12 months through November 15 versus 2020, with particularly high growth in physician medical groups, managed care and rehabilitation subsectors.
Deals appetite has persisted despite high multiples — the sector-wide mean enterprise value to EBITDA multiple for the period reached 15.2x.
In the same period, the sector has seen nine megadeals valued at $5 billion or more, plus traditional IPOs and IPOs backed by special purpose acquisition companies (SPACs).
Deals are being driven by forces including capital availability, regulatory pressures, searches for value, resilience imperatives and evolving value chain power dynamics.
While long-term care was the most popular subsector, it was the number of deals targeting physician medical groups that was particularly notable: over 400 in the 12 months through November 15. This compares to about 200 to 250 deals per year during 2017 to 2019. Practices have experienced challenging economics and may face 2022 Centers for Medicare and Medicaid Services (CMS) payment cuts as well, which could lead to more consolidation and private equity roll-ups.
Private equity and corporate capital is plentiful and driving demand for assets across subsectors. High industry-wide EV/EBITDA multiples haven’t stymied deal volume. Multiples are about where they were at the close of 2020, bolstered by increases in managed care (up 2.9 to 16.6x) and skilled nursing facilities (SNF), assisted living facilities (ALF) and long-term acute care hospitals (LTACH) (up 2.1 to 14.0x). That said, multiples have dropped in four of the seven subsectors whose multiples we track. Home health and hospice was down 5.0, but at 21.0x is still by far the highest of the subsectors. Acute care, ambulatory care-rehab-dental, and labs-imaging-pharmacy are all down between about 0.5 to 1.0x.
Given recent activity, ongoing interest in the public markets is expected. For years, there were no pure health services IPOs, but 2020 saw two, and 2021 has seen eight. This count excludes SPAC-backed IPOs, of which there have been at least a dozen in the 12 months through November 15 — two were classified as megadeals.
The level of megadeal activity indicates that deals will likely be plentiful going forward. While 2019 and 2020 saw just one megadeal each, the 12 months ending November 15 had seven non-SPAC megadeals:
“The pandemic’s not over but health services and private equity firms are finding plenty of opportunities to invest and grow. That said, resilience and unlocking value are front and center as competitive and regulatory pressures loom.”
LevinPro HC and LevinPro LTC: The merger and acquisition data contained in various charts and tables in this report have been included only with the permission of the publisher, Irving Levin Associates LLC. All rights reserved.
S&P Capital IQ: Information provided by or through third parties is provided “as is,” without any representations or warranties by PwC or such third party. PwC and such third parties disclaim any contractual or other duty, responsibility or liability to client and any person or entity that receives such information.
Partner, PwC US
PwC Deals Director, PwC US